Commonwealth ex rel. Elkin v. Punxsutawney Water Co.

• Decision Date: 07 January 1901
• Docket Number: 86
• Citation: 197 Pa. 569,47 A. 843
• Parties: Commonwealth v. The Punxsutawney Water Company
• Court: Pennsylvania Supreme Court

47 A. 843

197 Pa. 569

Commonwealth v. The Punxsutawney Water Company

No. 86

Supreme Court of Pennsylvania

January 7, 1901

Argued October 10, 1900

Appeal, No. 86, Oct. T., 1900, by plaintiff, from judgment of C.P. Jefferson Co., Nov. T., 1899, No. 50, on verdict for defendant in case of Commonwealth ex rel. v. The Punxsutawney Water Company. Affirmed.

Quo warranto to forfeit a charter. Before GORDON, P.J.

At the trial it appeared that the defendant company was incorporated on May 3, 1887, to supply water to the borough of Punxsutawney and its inhabitants. On February 27, 1899, John L. Wentz and others incorporated the Lindsey Water Company to supply Clayville, a borough abutting against Punxsutawney. Prior to this time Wentz had bought from the individual stockholders of the Punxsutawney Water Company a majority of the stock of that company. This stock he transferred to the Lindsey Water Company. On April 15, 1899, the Lindsey Water Company executed a mortgage, the description of the property in which covered the property of the Punxsutawney Water Company. On September 21, 1899, after the institution of this proceeding, the Punxsutawney entered into an agreement with the Lindsey Water Company by which in consideration of $100 per month "the Punxsutawney Water Company agrees to furnish the Lindsey Water Company with an ample supply of water for their customers until said company completes their lines, dam, reservoir, etc., and can supply their patrons with water from Clover Run. Conditioned, however, that in case at any time the wells or source of supply of the Punxsutawney Water Company might be diminished so as to injure the supply necessary for the use of said Punxsutawney Water Company and all of its patrons, contracts, etc., that the said Punxsutawney Water Company shall have the right to cancel this agreement, and cut off said water supply on twenty-four hours' notice to the said Lindsey Water Company, or its agent or representative."

The plaintiff presented the following points:

1. It appearing by the books of the defendant company and other testimony in the case, that under the option dated February 2, 1899, and in pursuance thereof, J. L. Wentz became the owner of a majority of the shares of capital stock of the defendant company early in April, 1899, thereby obtaining control of the corporation and its corporate property and franchises, and it also appearing by the resolutions and minutes of the Lindsey Water Company, with which he was connected, that his purchase was in the interest of that company, and that the purchase money was provided for by it and that thereupon a mortgage was executed by the Lindsey Water Company covering the property of the defendant company of which the remaining stockholders who had not parted with their stock had notice, and that no objection or protest was made by said stockholders, and that the same persons who had been and were directors and officers of the defendant company became and were at the same time also directors and officers of the Lindsey Water Company; and that in pursuance with the agreement, the taxes at the state department were, on the application of the defendant company's treasurer, J. L Wentz, adjusted and paid on the basis that on March 1, 1899, the stock of the defendant company had become the stock of the Lindsey Water Company, and that J. L. Wentz, the vendee of the stockholders of the defendant company, who was also treasurer of that company, together with the other persons who were directors of that company and also of the Lindsey Water Company, procured and enacted a resolution of the Lindsey Water Company by which a trustee was appointed, and thereupon a supplementary writing to the said mortgage, executed by E. J. Robinson, as president, and J. L. Wentz, as secretary of the Lindsey Water Company, by which all the stock acquired from the defendant company as aforesaid was impounded and subject to the indebtedness under the mortgage, and by special provision the dividends thereon to be applied to the indebtedness, and the method of voting the shares of stock aforesaid controlled in the interest entirely of the Lindsey Water Company and its mortgage indebtedness; these facts exhibit such a transaction and combination as violates the condition upon which the charter of the defendant company was granted, and the verdict must be for the complainant. Answer: We decline to instruct you as thus requested. The acts complained of did not affect the franchises or property of the respondent corporation, but merely resulted in the acquisition of stock from its shareholders. Whatever the intention of the promoter may have been originally, the consummation of the scheme resulted in the acquisition of stock alone, and, while stock is a representative of stock or its value, the transfer of stock is not a transfer of the property of a corporation. [1]

2. If the jury believe from the testimony in the cause, including the option of February 2, 1899, and the transfer of the stock to Wentz as shown by said books of the defendant company, and the agency of said Wentz for the Lindsey Water Company, and the use made by the Lindsey Water Company, and the fact that the same persons were directors of both companies at the same time, and the stipulation in the supplementary mortgage as to the control of this stock with respect to the indebtedness under the mortgage, and the mode of voting the stock, and the application for adjustment of taxes at the state department, and the adjustment and payment thereof; that the purpose of the transaction was to put the control of the defendant company and its property in the hands of the Lindsey Water Company, and that the stockholders not selling their stock with notice or knowledge of the purpose of Wentz to obtain control of the company, made no objection or protest thereto, then the defendant company has so acted as to incur the forfeiture of its charter rights, and the verdict must be for the defendant. Answer: This point is also refused. Had the effect of what was done resulted in interference with the rights of the borough of Punxsutawney or its citizens, and the jury would find the purpose of the transaction to be as stated, the point would be well taken, but the evidence fails to show any interference with these rights. The water service to the borough and its inhabitants has not been interfered with. It, as much as ever, will possess the right at the expiration of twenty years to retake the plant. And, while another corporation owns a majority of the stock, and, as a consequence, controls the corporation, it owns neither its franchises nor its property. The interests of these water company stockholders, in common with the other holders of stock, are practically identical with those of the borough. [2]

The court charged in part as follows:

[The evidence shows all of these parties acted in their individual capacities. They did not purport or pretend to bind the corporation, and while the option contract for the sale of stock as signed, purported to include the property of the corporation, as well as the stock they held, that proposition was not accepted. The original intention, as appears by the testimony, was to purchase outright, and consolidate the Punxsutawney corporation with the Lindsey Water Company. It further appears by the testimony that that purpose was changed after the promoter took the advice of counsel, and discovered that it was either illegal or an imprudent thing to do, and instead, therefore, of acquiring the property and franchises of the respondent corporation, they acquired simply a majority of its stock, and, with a view of controlling the corporation, refusing to have anything to do with the matter unless they could purchase the controlling interest. Instead, therefore, of carrying out the terms of the proposition contained in the stockholders' optional contract, a new condition was imposed by the purchaser of the stock, to wit: a deduction from each share of its proportionate part of the debt of the corporation, and a...